by Mike Mulvihill
Okay, the markets are in the tank since last Friday in part because of a bad jobs report, but also because of economic woes in Greece and Spain. As reported in the Wall Street Journal, “People are more nervous this week than most,” according to Rick Fier, director of equity trading at Conifer Securities. “There’s no real economic news or earnings, so the markets will center around rumors out of Europe.”
That would mean news about the ongoing problems in Greece and, now, Spain. Let’s put this in perspective for the U.S. in terms of impact upon our core economy for which I will focus on demand for our goods and services (i.e., exports).
Our top 10 trade partners in terms of 2011 exports (accounting for more than or 62 percent of all U.S. exports) were:
1. Canada
2. Mexico
3. China
4. Japan
5. U.K.
6. Germany
7. South Korea
8. Brazil
9. Netherlands
10. Hong Kong
In 2011, we exported $1.1 billion of goods and services to Greece . Spain was more robust with U.S. exports of $10.6 billion (about a wash with imports of $11 billion). To put this in perspective, Hong Kong – at number 10 on the list of trade partners – accounted for $36.5 billion in exports (only 2.5 percent of all exports), which would place both Greece and Spain at less than 1 percent.
So why are our financial markets so concerned about Greece and Spain? Banks are concerned because they have financial exposure, but the core economy has little exposure in terms of reduced consumption of U.S. produced goods and services.
Canada and Mexico are the most sizeable players in our economy accounting for more than 22 percent of all of U.S. export trade. China, the world’s second largest economy, comes next at 7 percent ($104 billion) of U.S. exports and would seem to be the more viable candidate for concern due to an economic slowdown from its torrid growth rate of past years. But before you get concerned and start selling off, reports are that China should stabilize in May (data due out later this week). Meanwhile, both presidential candidates are raising their China bashing rhetoric in recognition of the fact the U.S. has lost about 31 percent of its manufacturing jobs over the last 12 years, which the public blames on China. (BTW, about half of our imports from China in 2011 were for power generation and electric machinery/equipment.)
Wall Street makes a living out of drama, both real and perceived. While the situation in Greece, Spain and Europe is of concern to banks because they have money at risk, it should not be a perceived harbinger of another recession here at home. I would be a lot more concerned if there were problems north or south of our border than I am of financial crisis across the pond. But I am most concerned about the continued impact that large banks have upon our financial markets and perceptions of our own economic health.
A rational, balanced view. Such a refreshing departure from alarmist warnings on the cable news.